Will Tony Abbott's first budget launch Fightback II?

Peter Reith

The jury is still out on the Abbott government. They mostly say the right things but will they deliver? Will the 2016 election be Fightback II? Will the Abbott government go for 10 years and finally produce a surplus?

The team that did not have the courage for reform from opposition, will suddenly be the great reformers in the 2016 election campaign. Photo: Alex Allinghausen

A key part of Prime Minister Tony Abbott and Treasurer Joe Hockey’s pitch is that they will produce jobs and grow the economy but they still do not even know what they will do on tax or the labour market or when or if they will do anything. Throw in a reorganisation of federal/state relations and the government’s three white papers could easily end up as three explosive time bombs for the 2016 election. Because the Abbott team was so wary about policy in the lead up to the last election, they already have a big policy backlog to confront in 2016.

The reaction earlier last week to the news that the government was going to impose a whopping great big new debt levy tax was very quick and very negative. It was a mixture of disbelief, a sense that Abbott was attacking the idea of reward for effort, a renewed dislike of the paid parental leave scheme and a concern that the levy was evidence that Abbott might not have what it takes to fix the mess. The Liberals and business people who rang me were not just angry; they were shocked and seriously worried.

The levy revenue is likely to be about $2 billion a year. The government took the sting out of the response by explaining its rationale of spreading the burden and its intention that cutting expenditure would be the priority. And the release of the Commission of Audit certainly helped put the focus back on expenditure restraint. But it was a warning that, above all else, the people who voted for the Coalition are desperate they make a good start. Tuesday's polls are irrelevant but if the voters become disappointed that the government is not doing enough, Abbott’s electoral position will deteriorate.

The hard yards are still ahead. There is no point judging the budget until it is released but the government needs to be thinking about its longer term strategy.

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Abbott's government keeps saying a high priority is to promote economic growth. More growth means more jobs and less welfare. To make that point, they will announce some infrastructure spending. The government will need to explain why more spending on infrastructure is fine and how they will fund it without increasing debt. But this is small beer; the big changes needed to promote growth are labour market and tax reform. Many of the labour market reforms that are needed are well known but they were too difficult for the Abbott opposition so they took the easy way out and promised a Productivity Commission report after the 2013 election. The work on labour market reform and tax has not even started. Whereas in 1996, within the same time frame, not only had we decided what labour reforms we wanted, we were finalising negotiations with the Senate to get our first big reforms through. Abbott’s big economic reform proposals will not even be presented until next year and the government will put its changes to the 2016 election.

The team that did not have the courage for reform from opposition, will suddenly be the great reformers in the 2016 election campaign. It's possible. Former prime minister John Howard dismissed the GST in 1996 but proposed the GST in 1998 although he lost seats. Personally, I hope Abbott can do the same but I will believe it when I see it. What will be different in 2016 is that this year's budget looks set to be just the start, as many of the cuts will not actually occur until after the 2016 election. Even though the GST was a hard fight, labour reform and tax reform in the one election could be a lot harder.

Abbott needs to think about how to handle that scenario. The opposition will be salivating over their electoral brochures; for pensioners it will be "vote Labor and keep your pension"; the ACTU will be energised to protect their patch and anybody who fears that they will lose a tax dodge or suffer a tax increase will be an easy target for Labor. And then sacred cows, like the ABC, that were protected in this year's budget will be on the block in 2016. And given that the deficit may not be much better by 2016, Abbott supporters will want to know why more of the Commission of Audit recommendations have not been activated. No wonder politics is never dull.

Peter Reith is a former Howard government minister and a regular columnist.